US oil output back near records, challenging OPEC

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The price of WTI crude Oil does not seem to be bothered by the headlines signaling political turmoil in the USA, but rather is favoring the outlook that OPEC is expected to extend the production curb another 9-months. West Texas Intermediate, the USA benchmark for the price of oil, barely broke through a psychological threshold by gaining 1.4 percent from the previous close to reach $50.05 per barrel. Since bottoming out in September, however, USA crude oil production has increased by almost 465,000 b/d.

OPEC members have complied - and in Saudi Arabia's case, exceeded - production cut targets of 1.2 million barrels per day; and Russian Federation has shouldered much of the 600,000 barrels per day curb of non-OPEC nations.

North Sea oil shipments to Asia have also been at record highs this year, with 19 tankers delivering in Q1, and a similar amount expected to go to Asia in the second quarter.

The decision is to be finalized during a meeting which is to be held in Vienna on May 25.

In a note, Bank of America Merrill Lynch said the time it takes production cuts to impact on stocks was one of the major challenges for Opec.

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Some believe deeper oil cuts are required to make a positive impact.

Oil prices were heading on Friday for a second week of gains, trading above US$53 a barrel, on growing expectations that producers will agree further steps to support the market when they meet next week. Analysts surveyed had estimated a draw in the stockpiles of 2.4 million barrels. These sanctions resulted in roughly 800,000 barrels per day of Iranian production being shut-in between January 2012 and December 2015. "If Opec extends production cutbacks and maintains its production at current levels, the stock overhang based on divergence from a five-year average would have disappeared by year-end", said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

Describing the USA president as "in trouble", PVM analyst Tamas Varga said the health of the US economy could more or less withstand an early end to the Trump presidency.

IHS Markit estimates that new wells are producing at twice the productivity levels they once did with the new breakeven price for shale drilling now US$43-$45 a barrel. Market watchers expect the group to extend cuts until the end of March 2018.

Whatever the outcome of the much-anticipated meeting, oil producers will still face a dilemma. That should help tighten the oil market and push up prices as demand rises gradually this year, he said.

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